Friday, June 14, 2013

Dow Theory Update for June 14: Stocks down but the June 5 lows were not violated

Russell once
again lukewarm with the stock market

Stocks

The SPY,
Industrials and Transports closed down. The primary trend is bullish, and the
secondary one is bearish for the reasons given here.

The longer
the 06/05/2013 lows hold, the better the odds for a new rally, which would move
stocks away from the danger zone (the June 5 lows) and from the dreaded primary
bear market signal which will be flashed if such lows are violated, as was
explained here.

Today’s
volume was lower than yesterday’s, which is bullish. While this is subjective,
if we bear in mind that we have had four bullish volume days in the last five
days, plus a bullish pivot four days ago, I’d label the volume reading as
neutral and not as bearish any more. Here you have the latest chart that says
it all.

Look at the blue arrows at the right hand of the chart: Volume is not bearish anymore

So we close
this week with the following thoughts in mind:

·In spite of everything, the primary
trend continues bullish, and it deserves the benefit of the
doubt. Furthermore, being the current position signaled on January 2 (more
details here), we are not dealing
with an old bear market. We should bear in mind that Dow Theory positions along
the primary bull market last slightly less than 2 years on average for “Rhea/classical”
signal, and something around 1.3 years for those, like I, that follow Schannep.
More about Schannep’s “flavor” soon as I am completing very interesting
research. Of course, “averages” are just “averages," and there have been
many instances during the past when the trades had a significantly shorter
lifespan. Moreover, secular bear markets (and I believe given current valuations
we are still in one of them) tend to shorten the average lifespan of cyclical
bull markets.

·However, we are in the midst of a
secondary reaction against the primary trend, and we are too close to the “danger
zone” (the June 5 lows).

·Although volume is of marginal
importance, volume has turned neutral of late.

·If we couple a better volume reading
with (until now) refusal to violate the last recorded lows, there is some hope
for the bulls.

·However, if the worst happens, Dow
Theory investors have nothing to regret, as thanks to the Dow Theory trailing
stop (at the June 5 lows) it is likely that respectable profits (around 10% in less than 6 months) would be locked
in.

I am happy I
can do my own Dow Theory readings, and keep my independent judgment, as Richard
Russell, of the “Dow Theory Letters” has once again in a week changed his mind
about this market. Yesterday he wrote, “[p]laying
the bull side of this stock market is a dicey game, so if you take the gamble,
never forget your stop losses." A couple of days ago, Russell was
likening the current situation with the mega bull market of the early ninety
fifties, as you can read here. Now
he calls a long position a “gamble”. I really don’t know what to make of it. By
the way, no indication is given to his subscribers as to what is the logical
and technically correct stop. They are left to their own devices.

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This blog (dowtheoryinvestment.com) is strictly a personal journal applying my interpretation of Dow Theory principles to the action of the stock market and my musings about investment and trading in general. This blog is intended solely for entertaining, illustrative or informational purposes. I am not a registered investment advisor and neither the information nor the opinions expressed should be construed as a solicitation to buy or sell any stock, option, ETF, mutual fund, currency, commodity, or any other security. I am unaware of any readers personal circumstance, financial condition, risk tolerance or goals and objectives, so nothing read here should be considered advice suitable for them. Anyone reading this blog does so with the understanding that this is strictly meant as an analytical exercise and does not proffer actionable advice in any way, shape or form. Trading and investing always entail risk and possible loss of funds and should only be undertaken after appropriate due diligence by the trader/investor and after consulting a registered investment adviser.